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Local Capital Scarcity and Small Firm Growth: Evidence from Real Estate Booms in China

Author

Listed:
  • Harald Hau
  • Difei Ouyang
Abstract
In geographically segmented credit markets, local real estate booms can deteriorate the funding conditions for small manufacturing firms and undermine their competitiveness. Using exogenous variation in the administrative land supply across 172 Chinese cities, we show that higher predicted real estate prices cause higher borrowing costs for small manufacturing firms, reduce their bank lending, lower their investment rate and labor productivity, and reduce their output and TFP growth by economically significant magnitudes. These effects are absent in large and listed companies with access to the national capital market. The evidence highlights the benefits of financial market integration.

Suggested Citation

  • Harald Hau & Difei Ouyang, 2019. "Local Capital Scarcity and Small Firm Growth: Evidence from Real Estate Booms in China," CESifo Working Paper Series 7928, CESifo.
    • Handle: RePEc:ces:ceswps:_7928
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp7928.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    factor price externalities; real estate booms; firm growth; financial constraints;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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